Nervous stocks on proposed changes for financials

Dow dropped 199, decliners over advancers 3-1 and NAZ is down 48. Proposed changes to the financial system is causing many to have second thoughts about where these changes will take us. S&P 500 FINANCIALS INDEX is taking a beating as investors assess what's ahead for financials. On Fri, they closed at the top of their 2 month range but now are back in the middle of the sideways trading band.

S&P 500 FINANCIALS INDEX

Value 284.68.....Change down 18.89 ...... down 6.2%


The big investment banks agreed to become regular banks allowing them to be regulated by the Federal Reserve. This didn't happen by accident in this new world with new rules. FED Chairman Paulson probably told them to switch or else. Huge bonuses for investment banks are now history. But this change has become necessary for these businesses to remain whole.

•Goldman Sachs, Morgan Stanley Become Banks, Ending an Era for Wall Street


My financials had a volatile time last week. The junk bond funds took a pounding sending yields & yield spreads over the Treasury to some of the highest levels they have ever been. Even after the rebound on Fri, they got clobbered last week leaving extraordinary yields for the brave to ponder. Meanwhile the REITs were flying, probably in sympathy with the banks. The DJ Index rose 40 points in a couple of days only to give back 12 in today's first couple of hours. The gains in REITs helped offset most of the losses in junk bonds funds, diversifying is back in style.


Dow Jones REIT Index




Oil is flying once again.

CLV08.NYM

Crude Oil Oct 08

---108.33

--- 3.78 (3.62%)

The Alerian MLP Index is down only a couple after the big run-up on Fri, not bad all considered. I have a feeling the pop in oil prices is helping them today.

The old play book for financials has been thrown out the window. Adding $700B to the debt of the gov is making investors nervous. The gov will hold mortgages until maturity (maybe 7 years for an average mortgage). This is a new business for them & nobody is sure where it's may lead. In addition, Congress has to approve changes. In a year with a close presidential election, depending on Congress to do the right thing becomes iffy. Markets are watching Congress more closely then have have in some time. All this uncertainty is sinking the markets.